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The analysts covering Editas Medicine, Inc. (NASDAQ:EDIT) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 7.4% to US$30.41 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the latest downgrade, the current consensus, from the nine analysts covering Editas Medicine, is for revenues of US$19m in 2021, which would reflect a painful 79% reduction in Editas Medicine's sales over the past 12 months. Losses are supposed to balloon 113% to US$3.47 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$24m and losses of US$3.39 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 8.7% to US$38.11, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Editas Medicine at US$60.00 per share, while the most bearish prices it at US$14.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 79% revenue decline a notable change from historical growth of 50% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 21% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Editas Medicine is expected to lag the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Editas Medicine. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Editas Medicine's revenues are expected to grow slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we'd understand if investors became more cautious on Editas Medicine after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Editas Medicine, including recent substantial insider selling. For more information, you can click here to discover this and the 3 other warning signs we've identified.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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